When offering any kind of product or service to a Government agency a learning curve presents itself in the form of the Agency’s SOP, which stands for standard operating procedures. In the case of a Government guaranteed loan, the SOP must be followed in order for the financial institution to receive it’s loan guarantee. If they do not or the Agency does not believe they have followed the SOP then the financial institution will suffer the loss, which in this economy only adds insult to injury.
As you can imagine an auction company working in an area of the country where auctions have never been used before will cause the lender of Government guaranteed funds to look to the government agency for approval of our services. The situation gets even more complicated when the agency can not legally recommend one particular company over another. However, we are not asking the agency to recommend our company over another but rather the service we provide be approved as part of the liquidation plan. An interesting aside to all this is the fact that the Agency’s SOPs allow the guaranteed lender to use auction sales to sell their collateral. It’s kind of like that software manual that came with your PC, we don’t read them. We depend on a friend or colleague or attend a seminar, but we don’t actually read the manual. Same often seams to hold true for a Government Agency’s SOP.
The sale of non performing loan collateral before during or after a foreclosure, via an accelerated marketing program ending in an auction sale is accepted by most Government Guaranteed loan agencies. And is very helpful in selling assets when appraisals are often nothing more than blatant guesses. And buyers are hanging on the sidelines just waiting for more price reductions. Auctions create urgency where there is none and cause buyers to act on a specific timeline. The auction process usually take 60 to 90 days and when done well, provides savings to all the stakeholders. The property is sold without additional holding costs from, taxes, maintenance, vandalism, water damage from frozen pipes, resulting in mold or the stigma of a foreclosed property. In addition to holding costs there are direct depreciation of value when a business closes its doors. For example a hotel is operational one week and closes it’s doors the next. The flag or hotel franchise is lost, the property is vandalized and mechanical systems are not winterized properly. Such collateral can loose over $100,000 in value in just one weeks time. If the stakeholders were to contract with an auction company (one specializing in this type of work) prior to the owner walking out the door and “throwing the keys on the roof”, a plan could have developed where the guaranteed lender gets a large percentage of her loan recovered, the Government executes it’s guarantee to the bank for the deficiency, the borrower has far less deficiency owed to the Government and AND the tax payer is spared funding ever more losses by the Agency.
I have honestly concluded that I must be missing something, if you can help me understand how this works in the real world please leave your comments.
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